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Government stimulus packages attempt to create jobs by spending money. Why not have the government fix a road or build a school when workers would otherwise be sitting at home unemployed?

Keynesian economics predicts that this spending is very beneficial for the economy overall. Not only will the road get fixed, but spending by governments will create new income for whomever the project employs. Keynesian models predict that more government spending will actually lead to more private investment and will create new private sector jobs.

If the Keynesian theory is correct, it means the “spending multiplier” should be greater than one. All this means is that, should government spending increase, private investment will increase as a result.

The purpose of this project is to assess how well economists have demonstrated that the spending multiplier is greater than one. Specifically, we are seeking an “out-of-sample” (“OS”) test performed successfully. More on the importance of this form of testing can be found here.

We have compiled an exhaustive list of papers that try to measure the value of the multiplier. Descriptions of the papers are here. We believe that none of these papers establishes a predictive model that can be relied upon because they do not have a successful OS test of their model.